What is undoubtedly one of Friedrich Nietzsche’s more famous quotes, “that which does not kill us makes us stronger,” can certainly be applied to how Uruguay’s financial system fared after the 2002 South American economic crisis.
As the failure of the Argentinean financial market made news around the world and took its toll on neighbouring country’s markets (in Uruguay, for example, 40% of depositors were Argentinean in December 2001), Uruguay’s Central Bank
) and Ministry of Economy quickly began regulating the financial sector more firmly. Although there were casualties – five financial institutions were left insolvent – the country emerged stronger, with valuable lessons indelibly learned that have certainly come in handy in these turbulent financial times.
“The lessons that the authorities, regulators, banks and managers, and the banking system learned then have allowed us to be much more solid facing this current world crisis,” explains BCU president and former Vice Minister of Economy Mario Bergara.
Following the 2002 crisis, the challenge was to make institutional reforms and rework the legislation on competition, bankruptcy, investment promotion, and taxation. The government made it a priority to lay the foundations for economic, fiscal, industrial, and social stability. Today there is no financial strangulation, the debt is low, and furthermore, Uruguay is looking long term and not short term, says Mr. Bergara.
Proof of Uruguay’s post-crisis resilience can be seen in its GDP growth of 2.9% for 2009, and its never having dipped into the red since 2002.
More recent changes are doing even more to ensure stability in Uruguay’s financial markets. The 2008 Central Bank charter reformulated all institutional regulatory control, centralizing the regulation of all financial markets under a single commission. It also separated the Financial Savings Protection Corporation (an organization that ensures deposits and is responsible for the resolution of insolvent banks) from the BCU.
Uruguay’s efforts to continue solidifying its economy were bolstered in October 2010 when the World Bank Board of Executive Directors announced a new Strategic Partnership for the 2010-2015 period, allocating US$700 million for its implementation. Penelope Brook, World Bank director for Argentina, Paraguay, and Uruguay highlighted the country’s strengths, saying that “Uruguay is a small, innovative country with clear comparative advantages, where the World Bank can make use of tailored instruments: loans, technical assistance, and South-South exchanges.”
Uruguay’s increasingly solid economy and banking sector are attracting various new players, although any new financial entity that applies for admission must undergo a strict evaluation process of their stockholders, managers, and risk ratings. According to Mr. Bergara, however, there is plenty of room in the market, as the financial and banking infrastructure is not developed enough to meet current needs. The Central Bank is working with the government to promote these sectors, which offer an interesting opportunity for newcomers and established institutions alike in this underserved market.
“There is a vast market to expand and create those services for small and medium sized companies, which constitute 95% of our market,” claims BCU’s president, who would also like to begin offering more services to lower income families. “The objective is to universalize financial services, create new ones, and identify where the problems might be.”